Two men share securities regulation news

Breaking news and expert analysis on legal and compliance issues

[Back To Home][Back To Archives]

From Securities Regulation Daily, November 20, 2017

Bar from practice after fraud conviction not automatic

By Rebecca Kahn, J.D.

The SEC’s decision to bar or suspend from practice an individual who had been convicted of securities fraud was not subject to summary disposition where the jury verdict was unclear as to whether the individual was associated with an investment adviser at the time of his misconduct (In the Matter of Martin ShkreliRelease No. 5233, November 17, 2017).

Jury verdict. The Enforcement Division alleged that Martin Shkreli had served as managing partner and portfolio manager for two hedge funds. On August 4, 2017, a jury had found Shkreli guilty of violating Exchange Act Section 10(b) (securities fraud), and 18 U.S.C. § 371 (conspiracy).

Follow-on proceeding. The Division instituted this administrative follow-on proceeding against Shkreli, seeking to bar or suspend him from the securities industry pursuant to Advisers Act Section 203(f). The order instituting proceedings (OIP) alleged that during an unspecified timeframe, Shkreli was the managing partner and portfolio manager for the hedge funds and summarized the factual allegations of Shkreli’s indictment.

Shkreli declined on Fifth Amendment grounds to answer the first operative paragraph of the OIP. He admitted, however, the fact of the verdict rendered against him and the accuracy of the OIP’s summary of the allegations included in his indictment. The Division filed a motion for summary disposition, and Shkreli opposed.

Prerequisites. Under Advisers Act Section 203(f), the SEC may bar or suspend an individual from the securities industry if: (1) within the preceding 10 years the individual either willfully violated any provision of the Exchange Act or was convicted of a felony involving the purchase or sale of any security; (2) the individual was associated with an investment adviser at the time of his misconduct; and (3) imposing a bar or suspension would be in the public interest. Because the jury had found Shkreli guilty, the ALJ granted the Division summary disposition on the first prerequisite.

"Associated with investment adviser." Although the OIP alleged that Shkreli had been the hedge funds’ portfolio manager, it failed to specify when he occupied these positions. The ALJ noted that, even if it had, Shkreli’s invocation of the Fifth Amendment operated as an implied denial of these allegations.

Question of fact. Shkreli’s conviction was based on a broad period of time ranging from September 2009 to September 2014. As such, the ALJ explained, the jury may have based its convictions only on Shkreli’s conduct in 2013 and 2014. But Shkreli’s testimony established his association with an investment advisor only through 2012. Therefore, the Division failed to show that Shkreli’s misconduct necessarily overlapped with the time when he was associated with an investment adviser. Because this raised a material question as to whether Shkreli was associated with an investment adviser at the time of his misconduct, summary disposition was denied.

Public interest assessment. The Division failed to supply evidence necessary to determine what the jury decided when it convicted Shkreli. As Shkreli was acquitted of five of the eight counts in the indictment, the ALJ could not, without more evidence, determine which of the facts the jury relied on. Therefore, the question of whether the public interest supports barring Shkreli also survived summary disposition.

The release is No. 5233.

MainStory: TopStory AlternativeInvestmentFunds Enforcement FraudManipulation HedgeFundsNews InvestmentAdvisers

Back to Top

Securities Regulation Daily

Introducing Wolters Kluwer Securities Regulation Daily — a daily reporting service created by attorneys, for attorneys — providing same-day coverage of breaking news, court decisions, legislation, and regulatory activity.


A complete daily report of the news that affects your world

  • View full summaries of federal and state court decisions.
  • Access full text of legislative and regulatory developments.
  • Customize your daily email by topic and/or jurisdiction.
  • Search archives for stories of interest.

Not just news — the right news

  • Get expert analysis written by subject matter specialists—created by attorneys for attorneys.
  • Track law firms and organizations in the headlines with our new “Who’s in the News” feature.
  • Promote your firm with our new reprint policy.

24/7 access for a 24/7 world

  • Forward information with special copyright permissions, encouraging collaboration between counsel and colleagues.
  • Save time with mobile apps for your BlackBerry, iPhone, iPad, Android, or Kindle.
  • Access all links from any mobile device without being prompted for user name and password.